Prime Minister Tony Abbott says other states can "take heart" from the Commonwealth's $499 million payment to Western Australia to offset the state's dramatic decline in its share of GST revenue.

Next year, WA will receive just 30 per cent of the GST revenue raised in the state at a time when WA's state budget is buckling under the pressure of falling iron ore prices and mining royalties.

Although WA walked away from the last Council of Australian Governments (COAG) meeting empty handed on GST reform, the Federal Government agreed to a side deal, providing extra funding support for major road projects.

Mr Abbott was in Perth to announce the deal which recognised WA's particular GST problem.

Mr Abbott said he did not expect a backlash from other states.

The next year is probably going to be our most difficult year, so yes, I would imaging there will be another discussion.

WA Premier Colin Barnett

"Never before has any state been faced with the kind of revenue allocation which Western Australia is facing at this time," he said.

"So all the states should take heart from the fact that this is a Commonwealth Government, which wants to work with all of them constructively and intelligently in the circumstances in which they find themselves."

The money will be used to fund work on a number of major road projects, including the extension of the Mitchell Freeway to Hester Avenue, the widening of south bound lands on the Kwinana Freeway and the Perth Freight Link.

During negotiations with Treasurer Joe Hockey, WA had made it clear it needed $660 million to fully offset the projected fall in GST grants.

WA currently receives about 38 per cent of GST raised in the state, but that will drop to 30 per cent in 2015/16.

WA calculated the lost revenue over the next two years would total $660 million.

The Commonwealth and WA agreed that the $499 million payment would address the known impact of the GST drop in 2015/16, and they would revisit the issue once the GST implications for 2016/17 were known.

Abbott says payment 'sensible'

Mr Abbott said the payment was a "sensible" Commonwealth response to the acute, but temporary financial pressure on the WA State Government.

"These are sensible government to government arrangements," he said.

"These are the sorts of things that the Commonwealth does with the states from time to time, but obviously I am conscious of Western Australia's particular position and it is important for a Commonwealth to which governs in the interests of all the state's to respond to any one of them in its time of need, and that's what we've done."

Despite the $160 million shortfall, WA Premier Colin Barnett said he was happy with the agreement and took a swipe at the WA State Opposition.

"I'd always like more, but I think this has been a good result," he said.

"And the Opposition party in WA was saying that the work [Treasurer] Mike Nahan has been doing and my visit to COAG, [that] we didn't achieve anything. Well we achieved $500 million. A good start."

The payment is expected to ease pressure on WA's budget bottom line by reducing the amount the state has to contribute to the nominated joint projects with the Commonwealth.

But with iron ore prices predicted to remain low for the medium term, Mr Barnett said WA may be looking for further support next year.

"This is a year by year measure and we will still have a significant deficit, very much reduced from what it would have been," he said.

"The next year is probably going to be our most difficult year, so yes, I would imagine there will be another discussion."

Mr Abbott indicated the Commonwealth remained open to further support if required.

"Given the ups and downs of GST distribution, given the particular circumstances of the iron ore price, Western Australia is in a difficult position, just at the moment," he said.

"The kind of difficult position this state has rarely been in."

Despite calls by other states and the Federal Treasurer for WA to increase its rate of economic reform, the payment has come without conditions, although Mr Barnett said the state was already looking at asset sales and privatisation as part of its budget reform process.

"There is no requirement on so-called reforms attached to this funding," Mr Barnett said.

"Though it's quite clear the Commonwealth believes Western Australia should have higher level of privatisations than we've had, that's a fair point."

The WA State Government has ruled out the privatisation of the state's public water and power utilities.